Professional Documents
Culture Documents
Funds
Analysis
Statistical analysis of
Mutual funds on the basis
of risk and return
VIVEK A ACHARYA
ICFAI BUSINESS SCHOOL
STATISTICAL ANALYSIS
PROJECT REPORT
ON
STASTISTICAL ANALYSIS OF
MUTUAL FUNDS ON THE
BASIS OF RISK AND RETURN
AT
BY
VIVEK ACHARYA
IBS KOLKATA
(07BS4671)
Submitted to:
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STATISTICAL ANALYSIS
ACKNOWLEDGEMENT
Before I get into thick of the things, I would like to add a few words for the people who were part
of this project in numerous ways. People who gave unending support right from the stage the project idea
was conceived.
I am deeply grateful to my Organizational guide Mr. Ritesh Kumar (Assistant Manager,
ACKNOWLEDGEMENT
Kolkata) & Mr. Manoj Garg (Vice President, East India) as they remained a constant source of
ABSTRACT
encouragement & provided professional competent advice during the whole work & my stay in the
company. Their helping hand, constructive attitude, & dynamic approach helped me in shaping this
project.
Finally, I express my gratefulness to Dr. Kavita Shastri (Faculty & my project guide) & Prof.
Subhashish Chakroberty (SIP Coordinator) for lending me the valuable guidance & wholehearted co-
operation which enhanced my practical & theoretical skills.
I am highly indebted to all the Relationship managers and Investment Advisors who were a part
of my survey, helped in my endeavor and spurred me to achieve something worthwhile and enduring. I
would also like to thank the staffs and officials of Tata Mutual Fund for their co-operation in providing us
with all the information, which were required by us.
The success of this project is because of the cooperation of all. I take no credit for this
achievement but take the responsibility of any mistakes and inaccuracies.
VIVEK ACHARYA
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STATISTICAL ANALYSIS
CONTENTS
1. PROJECT TITLE 1
2. ACKNOWLEDGWMENT 2
3. CONTENT 3
4. ABSTRACT 4
5. CONCEPT OF MUTUAL FUND 5
a. ORIGIN OF MUTUAL FUND 6
b. ABOUT MUTUAL FUNDS 7
c. ADVANTAGES OF MUTUAL FUNDS 8
CONTENTS
d. TYPES OF MUTUAL FUND SCHEMES 10
6. COMPANY OVERVIEW 12
7. MUTUAL FUNDS INDUSTRY IN INDIA 15
8. STATISTICAL TOOLS 18
9. INFRASTRUCTURE MUTUAL FUND 23
a. MARKET CAPITALISATION 27
b. MEAN & STANDARD DEVIATION 28
c. ANALYSIS WITH STATISTICAL TOOLS 29
d. PORTFOLIO ANALYSIS 30
e. COMPARISION WITH THE BENCHMARK INDEX 33
10. EQUITY MUTUAL FUNDS 35
a. MARKET CAPITALISATION 40
b. MEAN & STANDARD DEVIATION 41
c. ANALYSIS WITH STATISTICAL TOOLS 42
d. PORTFOLIO ANALYSIS 44
e. COMPARISION WITH THE BENCHMARK INDEX 46
11. DEBT MUTUAL FUND 47
a. TOTAL FUND SIZE 51
b. MEAN & STANDARD DEVIATION 52
c. ANALYSIS WITH STATISTICAL TOOLS 53
d. PORTFOLIO ANALYSIS 55
e. COMPARISION WITH THE BENCHMARK INDEX 56
12. RECOMONDATION 59
13. APPENDIX 60
14. REFERENCE 63
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STATISTICAL ANALYSIS
ABSTRACT
This project offers a valuable opportunity to take a glimpse of the mutual fund in
India. In today’s increasingly competitive and complex world there are large
numbers of mutual funds claiming to provide maximum return with minimum risk.
It is become very difficult to select the best mutual fund. There are more than
ABSTRACT
1000 schemes available for the investors in India. It is very difficult to select a
particular scheme on the basis of their past records.
This project will try to analyse few popular mutual funds statistically on the basis of
the risk involved in each fund and the return of the same. Also an in-depth analysis
of their portfolio will be done which will give a better view for a fund’s resultant
performance.
This project identifies the key factors that is making a fund perform better then is
competitor. The factors identified in this study will help fund manager design their
fund’s portfolio and provide optimum return to its investors. Also the said project
will be used by Tata Asset Management Company in the Eastern Zone to train its
Relationship Managers in helping them giving an in-depth view about their fund.
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STATISTICAL ANALYSIS
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share
a common financial goal. The money thus collected is then invested in capital
market instruments such as shares, debentures and other securities. The income
earned through these investments and the capital appreciations realized are shared
CONCEPT
by its unit holders in proportion to the number of units owned by them. Thus a
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at
a relatively low cost. The flow chart below describes
describes broadly the working of a
mutual fund:
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STATISTICAL ANALYSIS
When three Boston securities executives pooled their money together in 1924 to
create the first mutual fund, they had no idea how popular mutual funds would
The idea of pooling money together for investing purposes started in Europe in the
mid-1800s. The first pooled fund in the U.S. was created in 1893 for the faculty and
staff of Harvard University. On March 21st, 1924 the first official mutual fund was
born. It was called the Massachusetts Investors Trust.
After one year, the Massachusetts Investors Trust grew from $50,000 in assets in
1924 to $392,000 in assets (with around 200 shareholders). In contrast, there are
over 10,000 mutual funds in the U.S. today totaling around $7 trillion (with
approximately 83 million individual investors) according to the Investment
Company Institute.
The stock market crash of 1929 slowed the growth of mutual funds. In response to
the stock market crash, Congress passed the Securities Act of 1933 and the
Securities Exchange Act of 1934. These laws require that a fund be registered with
the SEC and provide prospective investors with a prospectus. The SEC (U.S.
Securities and Exchange Commission) helped create the Investment Company Act
of 1940 which provides the guidelines that all funds must comply with today.
With renewed confidence in the stock market, mutual funds began to blossom. By
the end of the 1960s there were around 270 funds with $48 billion in assets.
In 1976, John C. Bogle opened the first retail index fund called the First Index
Investment Trust. It is now called the Vanguard 500 Index fund and in November of
2000 it became the largest mutual fund ever with $100 billion in assets.
One of the largest contributors of mutual fund growth was Individual Retirement
Account (IRA) provisions made in 1981, allowing individuals (including those
already in corporate pension plans) to contribute $2,000 a year. Mutual funds are
now popular in employer-sponsored defined contribution retirement plans (401k),
IRAs and Roth IRAs.
Mutual funds are very popular today, known for ease-of-use, liquidity, and unique
diversification capabilities.
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STATISTICAL ANALYSIS
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STATISTICAL ANALYSIS
Variety: Within the broad categories of stock, bond, and money market funds, you
can choose among a variety of investment approaches. Today there are more then
1000 types of mutual fund available for the Indian investors.
Low Costs: Mutual funds usually hold dozens or even hundreds of securities like
stocks and bonds. The primary way you pay for this service is through a fee that is
based on the total value of your account. Because the fund industry consists of
hundreds of competing firms and thousands of funds, the actual level of fees can
vary. But for most investors, mutual funds provide professional management and
diversification at a fraction of the cost of making such investments independently.
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STATISTICAL ANALYSIS
Convenience: You can purchase or sell fund shares directly from a fund or through
a broker, financial planner, bank or insurance agent, by mail, over the telephone,
and increasingly by personal computer. You can also arrange for automatic
reinvestment or periodic distribution of the dividends and capital gains paid by the
fund. Funds may offer a wide variety of other services, including monthly or
quarterly account statements, tax information, and 24-hour phone and computer
access to fund and account information.
Protecting Investors: Not only are mutual funds subject to compliance with their
self-imposed restrictions and limitations, they are also highly regulated by the
federal government through the U.S.
Securities and Exchange Commission (SEC). As part of this government regulation,
all funds must meet certain operating standards, observe strict antifraud rules, and
disclose complete information to current and potential investors. These laws are
strictly enforced and designed to protect investors from fraud and abuse.
But these laws obviously cannot help you pick the fund that is right for you or
prevent a fund from losing money. You can still lose money by investing in a mutual
fund. A mutual fund is not guaranteed or insured by the FDIC or SIPC, even if fund
shares are purchased through a bank.
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STATISTICAL ANALYSIS
By investment Objectives
BY STRUCTURE:
Open Ended Schemes: These do not have a fixed maturity. You deal directly with
the Mutual Fund for your investments and redemptions. The key feature is liquidity.
You can conveniently buy and sell your units at Net Asset Value related prices.
Close Ended Schemes: Schemes that have a stipulated maturity period (ranging
from 2 to 15 years) are called closed ended schemes. You can invest directly in the
scheme at time of the initial issue and thereafter you can buy and sell the units of
the scheme on the stock exchanges where they are listed. The market price of the
stock exchange could from the scheme’s NAV on account of demand and supply
situation, unit holders expectation and other market factors.
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STATISTICAL ANALYSIS
Interval Schemes: These combine the features of open ended and closed ended
schemes. They may be traded at stock exchange or may be open for sale or
redemption during pre determined intervals at NAV related prices.
BY INVESTMENT OBJECTIVE:
Growth Schemes: Aim to provide capital appreciation over the medium to long
OTHER SCHEMES
Tax Saving Schemes: These schemes offer tax rebates to the investor under tax
law as prescribed from time to time. This is made possible because the government
offers tax incentives for investment in specified avenues.
For example Equity Linked Saving Schemes, and Pension Schemes.
Special Schemes: This category includes index schemes that attempt to replicate
the performance of a particular index such as BSE Sensex or the NSE or industry
specific schemes or sectoral schemes.
Index Fund Schemes: They are ideal for investors who are satisfied with a return
approximately equal to that of an index.
Sectoral Fund: These schemes are ideal for investors who have already decided to
invest in a particular sector or segment
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STATISTICAL ANALYSIS
COMPANY OVERVIEW
Backed by one of the most trusted and valued brands in India, Tata Mutual Fund
has earned the trust of lakhs of investors with its consistent performance and
world-class service.
Tata Mutual Fund manages around Rs. 22,980.76 crores (as on March 31, 2008)
worth of assets across its varied offerings. Tata Mutual Fund offers an investment
COMPANY OVERVIEW
option for everyone, whether you are a businessman or salaried professional, a
retired person or housewife, an aggressive investor or a conservative capital
builder.
Areas of Business
A leading player in the mutual fund arena, TAM offers a wide array of product for
institutional and individual investors at various life stages across the risk- reward
spectrum. The company offers investment products under three main categories for
every financial need and under varied market conditions:
Equity funds
Balanced funds
Debt funds
The core strength of TAM stems not only from its sound systems and processes but
also from the quality of its intellectual capital, which is made up of the best and
brightest minds. At the same time, the company provides a robust risk
management framework with inbuilt controls and balances.
The title of the project is “Investors Perception About Mutual Fund” This will
through light on how investors view our funds as a potential investment with
detailed perception. Quantify the results of our fund marketing strategy and
improve the quality of our investor communications with valuable investor
feedback.
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STATISTICAL ANALYSIS
Perception research provides you with actionable feedback from investors who have
considered investment in our funds. It surveyed up to 200 investors to learn how
they perceive the value of our funds and what factors influenced their investment
decision.
TATA Mutual fund constantly benchmark our efforts against these tenets of
performance:
COMPANY OVERVIEW
Consistency: It strive to deliver consistent results through our value-based
investing methodology, keeping alive the credo of the late doyen of the Tata Group,
Mr. J.R.D. Tata, that money received from the people should go back to them
several times over.
Stability: Their commitment to the highest quality of service and integrity is the
foundation upon which we build trust with our clients.
Service: They offer a wide range of services to assist investors have a fulfilling and
rewarding financial planning experience with us. We have designed our services
keeping in mind the needs of our investors, giving them a smooth and hassle-free
financial planning process.
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STATISTICAL ANALYSIS
Core Values
The Tata Group has always sought to be a value-driven organization. These values
continue to direct the Group's growth and businesses. The five core Tata values
that underpin the way we do business are:
Integrity: We must conduct our business fairly, with honesty and transparency.
Everything we do must stand the test of public scrutiny.
COMPANY OVERVIEW
Understanding: We must be caring, show respect, compassion and humanity for
our colleagues and customers around the world, and always work for the benefit of
the communities we serve.
Unity: We must work cohesively with our colleagues across the Group and with our
customers and partners around the world, building strong relationships based on
tolerance, understanding and mutual cooperation.
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STATISTICAL ANALYSIS
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of
India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- SECOND PHASE
UTI Mutual Fund established in June 1987 followed
by Canbank Mutual Fund (Dec 87), Punjab National
1987- 1993
Bank Mutual Fund (Aug 89), Indian Bank Mutual
Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores
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STATISTICAL ANALYSIS
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a
wider choice of fund families. Also, 1993 was the year
THIRD PHASE in which the first Mutual Fund Regulations came into
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 2003, there were 33 mutual funds with
total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of
assets under management was way ahead of other mutual funds.
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with
assets under management of Rs.29,835 crores as at FORTH PHASE
the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain 2003 ONWARDS
other schemes. The Specified Undertaking of Unit
Trust of India, functioning under an administrator and
under the rules framed by Government of India and
does not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking
place among different private sector funds, the mutual fund industry has entered its
current phase of consolidation and growth. As at the end of September, 2004, there
were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
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STATISTICAL ANALYSIS
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STATISTICAL ANALYSIS
STATISTICAL TOOLS
Statistical Tools
STATISTICAL TOOLS
Mean
This shows the average return earned by a fund over particular period of time. It is
a good comparative tool to assess different types of fund.
Standard Deviation
where,
σ2 denoted standard deviation
is average return of a security,
N is number of period,
x is number actual return,
The larger the Standard Deviation in a period, the greater risk the security carries.
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STATISTICAL ANALYSIS
Beta
STATISTICAL TOOLS
Where,
ra measures the rate of return of the asset,
rp measures the rate of return of the portfolio of which the asset is a part,
Cov(ra,rp) is the covariance between the rates of return.
Beta is calculated using regression analysis, and you can think of beta as the
tendency of a security's returns to respond to swings in the market. A beta of 1
indicates that the security's price will move with the market. A Beta less than 1
means, the security will be less volatile than the market. A beta of greater than 1
indicates that the security's price will be more volatile than the market. For
example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the
market.
Many utilities stocks have a beta of less than 1. Conversely, most high-tech
Sensex-based stocks have a beta of greater than 1, offering the possibility of a
higher rate of return, but also posing more risk.
Sharpe Ratio
The Sharpe ratio tells us whether a portfolio's returns are due to smart investment
decisions or a result of excess risk. This measurement is very useful
because although one portfolio or fund can reap higher returns than its peers, it is
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STATISTICAL ANALYSIS
STATISTICAL TOOLS
Sortino Ratio
DR is downside risk,
R is portfolio Return
T is Target Return
The Sortino ratio is similar to the Sharpe ratio, except it uses downside deviation
for the denominator instead of standard deviation, the use of which doesn't
discriminate between up and down volatility.
P/E ratio
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STATISTICAL ANALYSIS
The price per share (numerator) is the market price of a single share of the
stock. The earnings per share (denominator) is the net income of the
company for the most recent 12 month period, divided by number of shares
outstanding. The earnings per share (EPS) used can also be the "diluted
EPS" or the "comprehensive EPS". The P/E ratio can also be calculated by
dividing the company's market capitalization by its total annual earnings.
For example, if stock A is trading at $24 and the earnings per share for the most
STATISTICAL TOOLS
recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another
way, the purchaser of stock A is paying $8 for every dollar of earnings. Companies
with losses (negative earnings) or no profit have an undefined P/E ratio (usually
shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may
be shown.
By comparing price and earnings per share for a company, one can analyze the
market's stock valuation of a company and its shares relative to the income the
company is actually generating. Investors can use the P/E ratio to compare the
value of stocks: if one stock has a P/E twice that of another stock, all things being
equal (especially the earnings growth rate), it is a less attractive investment.
Companies are rarely equal, however, and comparisons between industries,
companies, and time periods may be misleading.
Treynor Ratio
A ratio developed by Jack Treynor that measures returns earned in excess of that
which could have been earned on a riskless investment per each unit of market
risk. The Treynor ratio is calculated as:
(Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the
Portfolio
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STATISTICAL ANALYSIS
Fama
A factor model that expands on the capital asset pricing model (CAPM) by adding
size and value factors in addition to the market risk factor in CAPM. This model
considers the fact that value and small cap stocks outperform markets on a regular
basis. By including these two additional factors, the model adjusts for
the outperformance tendency, which is thought to make it a better tool for
evaluating manager performance.
STATISTICAL TOOLS
Here r is the portfolio's return rate, Rf is the risk-free return rate, and Km is the
return of the whole stock market. The "three factor" β is analogous to the classical
β but not equal to it, since there are now two additional factors to do some of the
work. SMB and HML stand for "small [Market Capitalization] minus big" and "high
[book-to-price ratio] minus low"; they measure the historic excess returns of small
caps over big caps and "value stocks" over "growth stocks".
Fama and French attempted to better measure market returns and, through
research, found that value stocks outperform growth stocks; similarly, small cap
stocks tend to outperform large cap stocks. As an evaluation tool, the performance
of portfolios with a large number of small cap or value stocks would be lower than
the CAPM result, as the three factor model adjusts downward for small cap and
value outperformance.
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STATISTICAL ANALYSIS
They invest in private infrastructure companies, but the fnds themselves can be
listed or unlisted. For example, Macquarie has been investing in infrastructure for
more than a decade and now manages over 20 infrastructure funds around the
world. Half of these are listed on the stock exchange, with investors from pension
funds and other institutions to retail investors. The rest are unlisted funds in which
the investors are largely pension funds and other institutions.
The fund tens to either specialize in one class of infrastructure - for example invest
only in airport or only in toll-roads – or they invest across various infrastructure
sectors which meet specified investment criteria. For example
Infrastructure assets have a low correlation to equity markets and other asset
classes. For the reason, it can provide valuable diversification in an investment
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STATISTICAL ANALYSIS
portfolio. It also provides a good match for the long-dated liabilities of pension
funds due its long-life and inflation protected returns. This stability in operating
cashflows can reduce the overall volatility of returns for investors and, in our
experience; investors are finding this combination of sustainable yields, lower
volatility and inflation-linked return increasingly appealing.
Infrastructure funds are part of a mutual fund category called thematic funds.
While sectoral funds invest in particular sectors like, say, information technology,
power, metals, oil and gas, etc, thematic funds invests in themes like
infrastructure, consumption-led categories like the retail industry and outsourcing
companies.
Today, there is a huge buzz about the Great Indian Gold Rush and its three themes
-- infrastructure, consumption and outsourcing.
Of these three, infrastructure funds have caught the fancy of a lot of mutual funds;
many new funds have been launched in this category in the last couple of years.
But there are only five that have a sizeable money under management; and these
four were launched before 2006:
~ These are are open-ended funds; this means you can invest in them whenever
you like. We expect some more infrastructure funds to hit the market but most of
them would be close-ended (in open-ended funds, investors are free to sell their
units anytime; in close-ended funds, investors cannot sell their units for a minimum
period of time -- this minimum period is decided by the fund).
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STATISTICAL ANALYSIS
Here's a fund suitable for all types of investors. The aggressive ones will like the
returns it offers while the conservative ones will find peace in its
diversification.
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STATISTICAL ANALYSIS
As infrastructure funds go, the fund is structured to exclude technology, FMCG and
pharmaceutical companies. But beyond this similarity, there exist discernible
characteristics in the fund's portfolio that set it apart from other infrastructure
based funds.
Tata Infrastructure Fund is one of the best fund and highly rated fund. It has
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STATISTICAL ANALYSIS
of more than 10 per cent. In 2006, it leapt to the topmost slot with returns of 61.48
per cent
MARKET CAPITALIZATION
Market Capitalization
MARKET CAPITALISATION
Rs. in Crores
50,000.00
45,000.00
40,000.00
35,000.00
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
DSP Merllynch Tiger ICICI Prudential Tata Infrastructure UTI Thematic
Fund Infrastructure Fund Fund Infrastructure Fund
The above graph shows that ICICI Prudential Infrastructure Fund has maximum
fund under management as s compared to other fund houses. It is followed by UTI
Infrastructure fund, Tata Mutual Fund and DSP Merllynch Tiger Fund respectively.
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STATISTICAL ANALYSIS
Mean Calculated above is for the period of past one year. We can see that there is
not much difference between the returns of these mutual funds. DSP Merllynch
T.I.G.E.R fund has provided maximum return of 43.88%,
4 which
ich means that it has
been most successful fund for the past year.
DSP Merllynch T.I.G.E.R fund also has the lowest standard deviation. It means that
it is the least volatile fund of the
th above mentioned fund. So, for both high risk
earner and comparatively low risk earner,
earner DSP Tiger fund is better option as it gives
highest return with least volatility.
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STATISTICAL ANALYSIS
Source: www.mutualfundsindia.com
If Beta less than 1 means, the security will be less volatile than the market. A beta
of greater than 1 indicates that the security's price will be more volatile than the
market. As seen from the above table UTI Infrastructure Fund is most volatile
followed by Tata, DSP and ICICI Prudential respectively. Now if market rise, UTI
Infrastructure Fund will rise at faster rate than other fund, but if market falls, UTI
Infrastructure Fund will fall at faster rate too.
The Sharpe ratio tells us whether a portfolio's returns are due to smart investment
decisions or a result of excess risk. The greater a portfolio's Sharpe ratio, the better
its risk-adjusted performance has been. ICICI Prudential has highest of Sharpe
Ratio of 0.36, which explains that the portfolio of ICICI Prudential is better of all.
Expense Ratio allowed by SEBI is 2.5% of the total asset under management. All
the above funds mentioned are below the mentioned ratio. But UTI Infrastructure
fund is having maximum expense ratio of 2.03%. Here again ICICI Infrastructure
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STATISTICAL ANALYSIS
PORTFOLIO ANALYSIS
25
DSP Merllynch TIGER Fund
PORTFOLIO ANALYSIS
ICICI Infrastructure Fund
20
Tata Infrastructure Fund
15
10
30
STATISTICAL ANALYSIS
We can see here that all fund houses is having maximum investment in Energy
Industries. The reason is that, energy sector is expected to boost with more private
players like Reliance and Adani entering the sector.
Critically examining the above portfolio, DSP is having is having a very high
investment in Financial Services Industries. Financial Services Industry especially
Banks have been largely hit by sub-prime crisis. It has result into a high liquidity
PORTFOLIO ANALYSIS
crisis. Banks like Citibank has closed its large number of branches in India. Citi-
financials has shut-down number of its operations. Also Banks like ICICI Bank Ltd,
Bank of Baroda and State Bank of India has disclosed its large exposure in sub-
prime crisis. DSP Tiger Fund and Tata Infrastructure Fund having large exposure in
financial sector are not expected to give higher return.
Also Metal Industry, especially steel industry is largely hit due to inflation and
export taxes levied by government of India. IT has reduced the profit margin of
steel industry and therefore affecting the earnings from sector.
DSP Fund is having investment is the sectors like health care and consumer
durables where no other fund’s investment is there. Also, ICICI Pru. Fund is having
investment in automobile industry where no other fund has its investment.
Tata Mutual Fund has about 21% of its Fund in the form of cash. Having high cash
ratio doesn’t help in providing higher return, as that percent of money in not
invested. But in the present market scenario where there in a large volatility in the
market fund manager might be waiting for the correct period to invest the money.
Other fund houses also have large amount of money not invested.
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STATISTICAL ANALYSIS
CHANGES IN PORTFOLIO
Tata Infrastructure Fund Bharti Airtel Ltd VSNL
Source: www.mutualfundsindia.com
There has been quite rational move by all the fund houses in including and
excluding right firm in their portfolio. ICICI Prudential made a huge change in its
portfolio by introducing 4 new companies and withdrawing from 4 existing
companies. It invested into companies like ONGC, Gujarat Ambuja Cement ltd,
India Cement Ltd and Mahindra & Mahindra Ltd, all having huge market potential. It
let away with HDFC, GAIL which are at the moment hit by the market factors.
Both UTI & DSP Merllynch had similar changes this month with both buying the
share of Reliance Industries Infrastructure Ltd shares and selling Reliance Energy.
DSP Merllynch T.I.G.E.R Fund also purchased some shares in Idea Cellular Ltd. It is
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STATISTICAL ANALYSIS
expected that Idea Cellular is expected to do well in the recent future; hence it
might be a good move.
Tata Infrastructure also did a positive move by investing into Bharti Airtel and
Reliance Petroleum which is expected to do well. Bharti Airtel is expected to merge
with MTN of South Africa. This merger is expected to benefit Bharti Airtel by giving
global markets. Hence it’ll help its shareholder.
The above shown graph describes the movement of the selected infrastructure
funds with the benchmark. Here the benchmark chosen in BSE Sensex. The data
selected for the above graph is for the past1 year.
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STATISTICAL ANALYSIS
It can be seen that when the BSE Sensex was on the rise, all the funds were
performing extremely well. The return is well above 100%. It can be seen that Tata
Infrastructure Fund was performing extremely well till Dec 07. It had provided
maximum return as compared to other fund houses and was rated best fund of the
But when Sensex crashed in the January ’08 we saw a steep fall in all the funds.
The fall was more the 100% to the Sensex. Thereafter, there was change in the
high performer with ICICI Infrastructure fund out performing other infrastructure
funds. It can be seen in the graph that ICICi Infrastructure performing best
followed by Tata Mutual Fund, UTI Infrastructure Fund and DSP Merllynch Fund.
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STATISTICAL ANALYSIS
EQUITY FUNDS
The term Equity Investment refers to the buying and holding of stocks in the stock
market by individuals & companies, then expecting income from dividends and
capital gains when there is a rise in the stock value. It also refers to the
The Equity Funds, also known as Stock Fund, is a fund that invests in equities /
stocks. These funds are generally held in stock or cash unlike securities or bonds.
This may be done by means of a mutual fund or exchange traded fund. The main
objective of investing in an equity fund is to have long-term growth via capital
appreciation apart from dividends and interest as sources of revenue. Explicit equity
funds may have their focus on specific market sector and also include certain
amount of risk.
The Equity Funds are either via the mutual funds or by any other pooled investment
vehicle. These vehicles have their prices quoted, listed and publicized. The mutual
funds are generally under the management of renowned fund management firms.
Under these types of holdings, the investors can have diversified funds with the
help and services of skilled professionals known as fund managers. These fund
managers are in charge of these funds.
Each equity fund can be distinguished from the other. For example, a fund can be
growth specific or and another can value specific. These funds can be invested only
in securities from one or more countries. Fund managed by the fund managers are
actively managed and the Index Fund reflects the specific market indices.
Different types of Equity Funds are available based on the motive of investment.
For instance, if you need to investment in equities for growth, the Stock Funds are
best suited to you.
35
STATISTICAL ANALYSIS
Type of Funds
3. Value Fund: - The Value Fund invests in Value Stock. The companies that are
listed under the Value Stock are generally well established organizations that pay
dividends.
4. Sector Fund / Specialized Fund: - As the very name indicates, the Sector
Funds tack a specific sector of the market i.e., one area of the industry. These
funds invest a minimum of 25% of their asset in their area of expertise. These
funds offer high appreciation accompanies by a high level of risk factor. The best
examples of a sector fund are gold funds, technology funds, etc.
5. Income Fund: - The Income Fund lays major emphasis on the income rather
than the growth. The investments of these funds are made in stock of reputed
companies, paying regular dividends, like preferred stocks, utility stocks, etc. The
Option Income Funds invest in securities on which options can be written and one
earn premium from writing options. Capital gains can also be earned from trading
options at profit. These funds hunt for increasing the total return by adding income
generated by the options to appreciation on the securities held.
36
STATISTICAL ANALYSIS
7. Asset Allocation Fund: - The Asset Allocation Fund distributes the investments
between stocks, income bonds, money market instruments, cash, etc in order to
acquire stability. The fund managers swap over the share of holdings in each asset
category based on the performance of the group.
collection of indicators, which provide vital information from price and volume
series. It involves in analyzing the constant information of the stock market with an
attempt to forecast future business and the financial developments.
Below listed are 4 equity funds, which have progressed well and have proved that
they will be relevant for some time to come, unless there is a fundamental change
in the way they are managed.
HDFC Top 200 is five-star rated fund by Value Research. It has given very good
returns in the past years. Its composition is considered to be very impressive. It
was launched way back in the year 1996. As on 30th April 08, its market
capitalization was 34,349 cr. It has been graded as below average risk and above
average return.
HDFC as a fund house has been progressing as a good pace but this fund has
performed exceptionally well and is expected to do well due to its appropriate
composition
37
STATISTICAL ANALYSIS
Reliance Growth has not only emerged as the largest mid cap fund but is also the
largest equity diversified fund with AUM of over Rs 5,600 crore. The fund has been
able to generate investor interest due to its impressive performance by beating its
peers by an impressive margin for the past so many years. The fund was launched
in September 1996. After the 2001 dotcom crash, the fund made a smart comeback
In 2007, the fund's investors had a reason to cheer since the fund gave them a
high return of over 76 per cent in the year consequently taking the fund's rank to
25 among the 162 funds. While the fund's allocation to large-, mid- and small-caps
keep oscillating, during the past six months, the exposure to mid-cap stocks has
increased from 43 per cent to over 50 per cent. In the past, the fund followed a
strategy of buy-and-hold for some stocks, while in some it has gone for a quick
profit taking. It is well known for its smart moves. In February 2006, the fund
maintained highest exposure to technology and basic/engineering. Now energy and
financial services sectors command the highest exposure of the fund. Over the past
one year the fund has also pared its exposure to auto and basic/ engineering
sectors also.
When the goings great, the fund performs exceptionally and even when the goings
not so smooth, Magnum Contra still manages to save face. Magnum Contra has
consistently managed to stay ahead of the curve. The fund outperformed the
category in every quarter since 2003. It emerged as the second and third best fund
in 2004 and 2005 and was pretty impressive last year too. It has the third highest
risk adjusted return in its category, i.e. for every unit of risk undertaken, the fund
gives you more bang for your buck. When the market slips, it tends to fall much
less than the category average as well.
This fund was launched in July ’99. The scheme of the fund is open ended and can
be purchased and sold at any point of time. The fund has struck a fine balance
between riding on consensus sectors and taking contrarian bets. The end product is
a blended portfolio of growth and value stocks. While still holding on to its multi-cap
orientation, the portfolio has expanded from 31 odd scripts to 57.
38
STATISTICAL ANALYSIS
The fund's mandate allows it to minimize the downside risk to a large extent, &
that's why the Tata Equity PE fund has performed well at most times. On the face
of it, the objective is straightforward - to scout for undervalued companies. But
what sets Tata Equity PE apart is the specific criterion that helps define
undervalued. It invests in stocks that have a trailing P/E ratio less than that of the
Launched in June 2004, this fund obviously had a tough time keeping up with its
growth-oriented peers. But in the longer run, it has paid off. Its year-to-date
performance (as on November 30, 2007) of 64.19 per cent puts it way ahead of the
category average (45.28 per cent), the Nifty (45.29 per cent) and the Sensex
(40.45 per cent). This could be the result of value stocks coming back in vogue. But
it also appears that stock picking paid off.
Early last year, the fund began stocking up on the ferrous metals sector. In April
2006, the fund had a 22.5 per cent allocation to metals while the category average
was just 8.33 per cent. When metal stocks were getting hammered, stocks like
TISCO and SAIL were picked up at attractive valuations. PSU banks like Bank of
Baroda and Indian Overseas Bank were also picked up last year. When the category
average to the financials sector was almost 9 per cent (October 2006), this fund
had a 15.27 per cent allocation to it. While it tends to take concentrated sector
bets, it does not take huge stock positions. Compared with some other schemes
from Tata Mutual Fund, this one has a slightly smaller, but nevertheless quite large,
portfolio of around 40 stocks. A good value fund for one's portfolio.
39
STATISTICAL ANALYSIS
Market Capitalisation
The following graph shows the average market capitalization of the above mentioned funds.
Capitalisation
FUND
Market Capitalization
ABOUT EQUITY
40000
34349
35000
Market
30000
25000 23171
20000
15000
10439
10000 8028
5000
0
HDFC Top 200 Fund Reliance Growth Fund SBI Magnum Contra Fund Tata P/E Equity Fund
HDFC Top 200 fund has the highest market capitalization as compared to other funds. Reliance being the oldest fund
has not been able to attract large number of investors. Tata P/E Equity fund has the lowest market capitalization. The
reason may be, it is the youngest fund of the lot launched in December 2004.
40
STATISTICAL ANALYSIS
30 23.18 27.59
26.29 27.14
20
10
In the above show chart, we can see SBI Magnum Contra Fund out performing
other funds. It has given a average return of 42.24 in the past 1 year followed by
Reliance Growth Fund, HDFC Top 200 Fund and Tata P/E Equity Fund. Tata P/E has
lowest average mean of 37.71.
While calculating their standard deviation, we see HDFC Top 200 having least SD of
all. It means that HDFC is least volatile fund of the lot. The most volatile fund is
Reliance Growth Fund. Tata is also on the higher side with SD of 27.14.
So looking at the above chart, we can say that SBI Magnum is better fund as its
average return is highest and SD is low, though not lowest.
41
STATISTICAL ANALYSIS
Looking at the above given data, we have quite mixed reactions about these funds.
Beta of three funds is less than 1. It means that if market falls, there will
comparatively small fall in these funds, while if the market rises, there rise will also
be comparatively less. So we can say that these funds are less risky but will also
42
STATISTICAL ANALYSIS
give less return. Tata P/E equity fund is having beta of more than 1 i.e. 1.01, which
means 100% change in market will bring 101% change in the fund. So this is
comparatively more risky fund but is expected to give higher return. In the present
market scenario where it is very difficult to say if market would rise or fall, it is very
hard to say whether a fund should have Beta more than 1 or less than 1.
Treynor Ratio measures returns earned in excess of that which could have been
earned on a riskless investment per each unit of market risk. Reliance Growth fund
out scores other funds in this ratio with Treynor Ratio equal to 1.41, followed by
Tata P/E Equity Fund at 1.28, SBI Magnum Contra Fund at 1.18 and HDFC Top 200
at 0.97.
The P/E ratio (price-to-earnings ratio) of a fund is a measure of the price paid for
a fund relative to the annual income or profit earned by the fund per unit. Investor
who opts to purchase a fund would prefer low P/E, while a seller would like to sell a
fund whose P/E is high. Among the above funds, investor would prefer to invest
into SBI Magnum and Tata P/E Fund as it has low P/E, i.e. it is not listed at a high
price. Reliance Growth and HDFC Top200 is listed at a high price and hence
expensive to purchase for an investor.
Expense incurred by Tata is very high at 2.36% of the fund. The reason might be
that it is comparatively new fund house and needs to incur some advertisement
expenses. Also the market capitalization of the fund is comparatively low, hence the
ratio might seem to be quite big as compared to other. Reliance Growth fund has
lowest expense ratio.
43
STATISTICAL ANALYSIS
Portfolio Analysis
30
HDFC Top 200
Portfolio Analysis
SBI Magnum Contra
25
Reliance
Tata
20
15
10
The above graph shows the portfolio of the selected fund. From the graph it can be
seen that Reliance Growth and SBI Magnum Contra Fund is spread throughout the
different sector.
Here HDFC Top 200 Fund is having around 20% exposure in the financial market.
Financial market is on the back side, with the sub-prime
sub prime crisis. For the past 3
months Indian financial market is on the back foot. Also their fourth quarter results
are not very impressive. So the return
return from the HDFC Top 200 fund and Tata P/E
Equity Fund is comparatively lower.
44
STATISTICAL ANALYSIS
Also the exposure of Tata P/E Equity fund is more than 27% in Metal and metal
product. The return from this fund largely depends upon this sector. If any
uncertainty hits this sector, the loss to this fund will be enormous.
We can also see that it is only HDFC Top 200 have invested in consumer durables.
While Reliance Growth Fund have invested in Textile sector.
It should also be noted that Reliance Growth Fund is having around 20% of the
fund in cash which is very large amount on which the fund is not earning any
Portfolio Analysis
return. It might be that the fund manager would be waiting for the right time to
invest in this volatile market. SBI Magnum is having very small portion of the fund
in cash so the return will be received on the entire fund, but at the time of bulk
return the fund manager might find problem.
We can see that from the previous portfolio there is not much difference in the
present portfolio.
Reliance Growth bought Kotak Mahendra Bank Ltd to its portfolio which is very
smart move. Though there are number of bank’s equity shares loosing grip in the
market but Kotak Mahendra has performed well in the last few months and the
results were also quite satisfying. It also took a rational step by selling off JSW
Steel Ltd, as steel industry is in huge pressure from the government on keeping the
price of the product low and also international rise in raw metal.
45
STATISTICAL ANALYSIS
Tata P/E Equity fund kept itself away from investing in the high volatile market but
it sold couple of its shares. One of which was ONGC, the stock which expert suggest
is not going to do well. So the move seems to be a rational one from the Tata Fund
House.
46
STATISTICAL ANALYSIS
Debt Fund
The main investing objectives of a debt fund will usually be preservation of capital
and generation of income. Performance against a benchmark is considered to be a
secondary consideration to absolute return when investing in a debt fund.
A debt fund has lots going for it as an investment. For most, it's the only way to
invest in income-generating instruments without having to commit huge sums of
money, or stressing out about assorted worries such as transaction costs, stamp
duty or lack of liquidity. In fact, many of the most attractive debt instruments are
unavailable directly to the retail investor.
Debt itself has the advantage of being much less risky than equities. Equities may
return more, but their volatility can be distressing. If steady, predictable returns
are what you expect, a debt fund will deliver precisely that. That's why it's an
essential portfolio component for people who take a keen interest in money
management, like 54-year-old housewife "Open-ended debt funds provide regular
income, liquidity and tax advantages minus the sleepless nights of equity." There's
also the tax-saving angle. Budget 99 made dividends tax-free in the hands of the
investor. Further, investors can claim indexation benefits, which have the effect of
reducing the tax liability on their capital gains arising from the sale or redemption
of units of debt funds.
47
STATISTICAL ANALYSIS
48
STATISTICAL ANALYSIS
It can be seen that it has not always outperformed the benchmark index unlike
other funds.
49
STATISTICAL ANALYSIS
50
STATISTICAL ANALYSIS
Fund Size
in crores
275.45
300
200
150
100
29.95 34.69
24.54
50
0
Birla Sun Life HSBC Income Kotak Income Plus Tata Income Fund
Income Fund Investment Plan Fund
The above given figure shows the net asset of each fund as on 30th April 08.
It can be clearly seen that in type of fund that we have selected, Birla Sun Life
Income Fund leads others with its fund size of more than 250 crs. The fund was
launched 10 years ago and has been able to attract huge amount of investor in
their fund.
The oldest fund of all, HSBC Income Investment Fund has not been able to attract
and keep large number of investment. This might be the reason for its fund
fu size the
lowest of the lot.
Tata Mutual fund has also been launched 10 years ago and though its fund size is
very small as to Birla Sun Life Income fund it is doing better than other two funds.
51
STATISTICAL ANALYSIS
10.73
2 1.77
1.87
0
We can see here that Birla Sun Life Income Fund has out-performed
out performed other fund in
the form of average return. It has provided return more than 10% while
wh others are
less than 8% of return. So we can say that Birla Fund house has performed
exceptionally well.
HSBC Income Investment Fund is giving second highest return at 7.3% while Kotak
and Tata fund houses follow them respectively.
While looking at the deviation from their mean, we find HSBC Income Investment
Plan is having lowest volatility at 1.77% followed by Tata Income Fund at 1.87,
Birla Sun Life Income Fund at 2.98 and Kotak Income Plus Fund at 5.63%. Kotak
Income Plus Fund is most volatile fund as its Standard Deviation is very high as
compared to other such schemes.
A rational investor will always prefer a fund giving high return with least standard
deviation. Also in debt fund, the investors are low risk takers and avoid investing
i in
the funds having Standard Deviation high. So for them Birla Sun Life Income Fund
will be considered as the optimal plan.
52
STATISTICAL ANALYSIS
Now let us compare these funds on the basis of their statistical Ratios
Beta of all the fund is more than 1 which means if its benchmark quotes increase by
100% all the fund’s NAV will increase by more than 100%. The biggest change will
be in Tata Income Fund as its Beta is highest at 1.09. So if the benchmark will be
on the rise, Tata will rise at fastest rate of all other fund followed by HSBC and
Kotak fund with Birla being the last of the lot.
53
STATISTICAL ANALYSIS
Sharpe ratio concentrates on the composition of the fund. It calculates how smart
the fund is structured. Without a doubt, Birla Fund House tops the ratio followed by
Kotak Income Plus fund. Both HSBC Income Investment fund and Tata Income fund
are having lowest Sharpe Ratio.
Sortino Ratio calculated only downward movement of the fund with its benchmark.
Here again we see that Tata Income Fund is having highest expense ratio of 2.25 of
the total asset. It is having very high expense throughout its entire funds. Even
Kotak Income Plus Fund is also having very high expense. Both HSBC Income
Investment Fund and Birla Sun Life Income Fund is having lowest expense ratio of
the lot.
So reviewing the above table we can say Birla Sun Life Income Fund is the best of
the lot in almost all the ratios and hence most attractive fund.
54
STATISTICAL ANALYSIS
Porfolio Analysis
100
Portfolio Analysis
Kotak Income Plus Fund
60
Tata Income Fund
40
20
0
AAA P1+ GOI Securities AA+ Cash & Money
Market
-20
A good mutual fund is that fund which is optimally distributed. Here we see HSBC
Income Investment Fund having more than 85% of the fund invested in the AAA
Rated Funds which may not be that much rational. Also its cash in hand is in
negative. It implies that it has taken money on credit to invest in the market.
m In
this case, if there is any large redemption from the investors, in that case the fund
manager might not be able to provide timely money to the investors.
Birla Sun Life Income Fund is having properly diversified portfolio with its
investment in allll high credit rated funds. We can see that its investment is less in
the GOL securities as in these securities risk is very less or we can say, there is no
risk but return is very less which does not help in earning more of a return. Its high
investment in n money market helps the fund in receiving more return from the
investment. So it is well balanced fund
Looking at the above graph we can see that Kotak Income Plus Fund is slightly
more risky as compared to other funds as it is having its investment in the th
companies with not the top level of Rating. It is also having investment in the
55
STATISTICAL ANALYSIS
companies with credit rating AA+ which makes it slightly more risky than other
funds. Also it is only Kotak which has invested in AA+ rated companies.
Tata Income fund is alsoo well diversified fund with its investment in all top credit
rated companies. It is having highest investment in GOI securities which makes this
fund least risky but also reduces the opportunity of earning more from other
companies.
It can be seen in the graph that Kotak Income Plus Fund has been most volatile
fund and has fluctuated a lot for
for the past one year. For the first three months its
growth was similar to other funds but in the month of September we saw a big fall
in the NAV of Kotak Income fund. This fall led to its NAV even below Benchmark.
56
STATISTICAL ANALYSIS
But thereafter for the next 4 months there was a big gain in its NAV. Its NAV was
highest for that period outperforming all other funds. But it again noticed a major
fall, ending the year with lowest NAV for the year. The reason for such volatility can
be its portfolio composition having AA+ rated bond funds.
As far as Birla Sun Life Income Fund is concerned, it has constantly provided high
return. It can be seen from the graph that when there is an increase in the
benchmark index, Birla Fund saw a greater rise, but there was not greater fall when
there was a fall in the Benchmark Index. This really makes fund most attractive and
desirable for the investors. It ended the year with staying on the top of the selected
fund. This is the reason it was accredited with five star rated fund from CRISIL.
HSBC Income Investment fund performed fairly well with always staying above the
benchmark Index. It has never fallen below the benchmark and this makes this
NAV Graph
fund second most preferred fund as there is least volatility and steady growth. It
ended the year with second highest NAV of the selected funds.
Tata Income Fund has not performed well. For the most of the period its NAV
stayed below the benchmark index. Though we don’t see much of the volatility in
the fund, which makes it less risky but investor do demand returns at least as that
of its benchmark if not more. But for 9 months its NAV was below CRISIL
Composite Bond Fund Index. At the end of the year, we saw some upward
movement in the NAV ending third of the selected funds.
57
STATISTICAL ANALYSIS
Recommendations
different sector and avoid keeping majority funds only in a particular sector.
It should reduce its Expense Ratio which is very high as compared to other
fund houses
Its changes in portfolio compared to previous are very rational but it should
also try to reduce its share in the financial sector which is at the downside.
Tata Mutual Fund is not doing very good in the Debt Fund category. It
should try to reduce its share from the GOI securities and participate more
in the money market.
58
STATISTICAL ANALYSIS
APPENDIX I
Instruments rated 'AA' are judged to offer a high degree of safety with regard to
AA
timely payment of financial obligations. They differ only marginally in safety from
(Double A) High Safety
Appendix
`AAA' issues.
Instruments rated 'A' are judged to offer an adequate degree of safety with regard to
A
timely payment of financial obligations. However, changes in circumstances can
Adequate Safety
adversely affect such issues more than those in the higher rating categories.
Instruments rated 'BBB' are judged to offer a moderate safety with regard to timely
BBB
payment of financial obligations for the present; however, changing circumstances
(Triple B) Moderate
are more likely to lead to a weakened capacity to pay interest and repay principal
Safety
than for instruments in higher rating categories.
This rating indicates that the degree of safety regarding timely payment on the
P-1
instrument is very strong.
This rating indicates that the degree of safety regarding timely payment on the
P-2 instrument is strong; however, the relative degree of safety is lower than that for
instruments rated 'P-1'.
This rating indicates that the degree of safety regarding timely payment on the
instrument is adequate; however, the instrument is more vulnerable to the adverse
P-3
effects of changing circumstances than an instrument rated in the two higher
categories.
This rating indicates that the degree of safety regarding timely payment on the
P-4 instrument is minimal and it is likely to be adversely affected by short-term adversity
or less favourable conditions.
59
STATISTICAL ANALYSIS
Appendix II
Few of the Funds Provided By Tata Mutual Funds
Equity fund
Appendix
Infrastructure Fund
Mid Cap Fund
Contra Fund
Debt Fund
Balance Scheme
60
STATISTICAL ANALYSIS
Appendix III
Return as
Fund NAV Returns (%) on
Appendix
DWS Investment Opportunity 36.29 54.62 5/15/2008
61
STATISTICAL ANALYSIS
Top Ten Open Ended - Debt Fund: Monthly Income - One Year Return
Appendix
34.91 14.21 5/15/2008
62
STATISTICAL ANALYSIS
References
References
www.taurusmutualfund.com
www.reliancemutual.com
www.moneycontrol.com
www.valueresearchonline.com
www.investopedia.com
www.wikipedia.com
AMFI study material
Mutual Fund Insight magazine
Capital market magazine
63